Thursday, 28 May 2009

Economic impacts of carbon pricing

How much extra will putting a price on carbon add to the household power bill?
The result of course depends on what price is set for carbon by the Federal Government. Currently this is $10 per tonne, although a recent report suggests the price is not expected to remain at this level. But even at $25 per tonne, the Government's fact sheet estimates a rise of, on average, $4 per week for electricity and $2 per week for gas and other household fuels.

Sean Casten has done some calculations for US electricity prices. The result? $13.60/MWh, or 1.4 cents/kWh. Given that the average price for electricity in the USA is 9.75 cents/kWh, this amounts to a 14% rate increase. (The US prices carbon at $20/ton.)

However, as he points out, electricity prices vary between states; this increase amounts to the difference between Maine (13.9 cents/kWh) and Massachusetts (15.3). On this basis, saying that Australia would be disadvantaged by setting a carbon price is like saying that Massachusetts would lose its industry to Maine because of this price differential. (As a recent post to this blog pointed out too, changeover costs tend to be overestimated because they don't take implementation efficiencies into account.)

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